Millennials Will be Worse off Thanks to New York’s $15 Minimum Wage Hike

By Randal John Meyer
This article appeared on Forbes on July 28, 2015.

Over the past few years, millennials in upstate New York have had something of a break from hard economic times nationally. Contrary to the national average, two of the larger metropolitan towns in upstate New York, Buffalo and my hometown of Rochester, have had job growth of 9% and 6% for millennials, respectively, between 2007 and 2013 (Syracuse and Elmira have had noticeable gains as well). Governor Andrew Cuomo’s administration is taking unilateral, undemocratic steps to ensure that growth will fall flat.

The largest sector by far where this economic growth has occurred is in the food service and preparation industries, creating 4,500 new jobs in Buffalo. The fast food industry specifically is one large area where this growth has occurred: “Over the past 4 years, the number of fast food jobs in NYC increased by nearly 30%, almost 10 times as fast as the 3% overall increase in private sector employment over that period.” As to upstate New York, “the growth in the number of fast food jobs alone is nearly as great as the net gain of 38,000 jobs in total public and private employment, according to data from the New York State Labor Department.”

Governor Andrew Cuomo’s administration is taking unilateral, undemocratic steps to ensure that growth will fall flat.

New York State Law empowers Cuomo’s New York Wage Board to set the minimum wage for the state, even for only specific industries, without the permission of the state legislature. Armed with this power, the Board determined that the wage for fast food restaurant employees in New York must be raised to an unscientific $15 an hour. Governor Cuomo has already asked the state legislature to raises the wage beyond the $9.00 it was already raised to; his efforts to increase the minimum wage to $11.50 in New York City and $10.50 elsewhere were unsuccessful. The $15 an hour increase will be fully phased in by 2018 for New York City and by 2021 for everywhere else in the state.

How the increase will affect the economy

There are two problems with this. First, some of the recent employment growth will be directly affected by the increase. The wage order will affect restaurants other than McDonalds and Burger King, like Moes, Chipotle, Sonic and Potbelly that have expanded into upstate New York in the last decade. Second, this will decrease the number of entry level food service jobs for Millennials, an increasingly necessary prerequisite to working in more upscale restaurants (the other area of the food industry growth upstate).

In other cities that have tried applying the $15 minimum wage to restaurant industries, the results have not been great, to say the least. In Seattle, “Restaurants are closing at higher than normal rates. And Seattle is already a fairly high wage place.” Chipotle has increased its prices in cities where the minimum wage keeps rising. Consider this from a cost perspective: “An increase in the fast food minimum wage to $15 an hour, as the Wage Board is considering, represents an increase of 66 percent,” and a 66% increase in labor costs means less jobs and higher prices to compensate for minimum labor costs that cannot be offset.

Expect distortions in the restaurant industry

Sit-down restaurants will be forced to increase wages to compete with fast food industries—who would take a lower-paying (including tips) high-stress waiting job when there are higher-paying, lower-stress jobs for people experienced in food preparation and service? Increased labor costs means that these restaurants will be forced to increase prices, keep staff at the bare minimum, slow growth, and perhaps close. Thus, the increase in the wage in the fast food industry will have a ripple effect in the entire food service industry. The 2014 average median wage for all industries in the New York City metro area may be $21.73, but it is just $17.36 in Rochester, $16.71 in Buffalo, $16.05 in Binghamton and $15.30 in Glen Falls. A $15.00 an hour minimum wage in a low-skill industry will disrupt the labor markets in those cities significantly.

Young people will suffer the most

Moreover, as Diana Furchgott-Roth and Jared Meyer (no relation) of the Manhattan Institute discuss in their recent book, Disinherited: How Washington is Betraying America’s Youth, minimum wage hikes disproportionately harm young millennials, particularly teenagers, seeking entry-level jobs and part time work. Minimum wage opportunities are the primary way for young people to have work experience before moving on to other opportunities. This is one reason why over half of the 3% of workers who earn the minimum wage are under 25, and two-thirds of minimum wage earners work part-time. Without those first jobs and the professional development opportunities that come with them, one cannot move on to become a waiter, or eventually a doctor or a lawyer.

Meyer informed me:

What is particularly problematic with Cuomo’s un-democratic action is that he is singling out one industry that is politically-popular to attack for the increase. Though Cuomo may argue that he is only forcing billion-dollar companies to pay their workers more, he is ignoring that the vast majority of fast food establishments are owned by franchisees. Corporate McDonald’s, for example, does not control the pay or staffing decisions made by franchise owners, and most of these entrepreneurs own only one or a few locations. What Cuomo and the Wage Board are really doing is waging a war against small business owners, not corporate behemoths.

As someone who grew up in Rochester, NY, went to college in Binghamton, NY, and attended law school in Brooklyn, NY, I do not want to see the growth that has helped my home state be hampered for political gains. Governor Cuomo should not use his executive powers to countermand the wisdom of the legislature, nor should he be tampering with the fragile recovery of an area that sorely needs it just to score political points.

Randal John Meyer is a legal associate at the Cato Institute.